Notes
Resources
This was the first full quarter results for combined Warner + Discovery. Pro-forma, revenue was down 3% and EBITDA was down 32% (not good). DTC (streaming) segment was up only 2% on a pro-forma basis while competitor Paramount grew its Q2 DTC business by 56%!
Net debt is a little over $49bn. With shares at $13, this is a ~$32bn market cap and $81bn EV.
If the $12bn 2023 EBITDA guidance holds, the stock is trading at 6.8x EBITDA with 4.1x (forward) leverage. FCF would be $4-6bn next year at 33-50% conversion, good for a 13-19% FCF yield. This means management has backed off the $14bn and 60% conversion guide from the deal announcement.
Most important here, capital allocation is going to be severely hamstrung until the debt levels come down.
Before merging with Warner, Discovery was historically trading around 7.5x EBITDA. At $12bn in FY23 EBITDA and $4bn debt paydown by yearend 2023, a 7.5x multiple = $18 price target.
